Do Institutions Have Morals?

By Muhammet Sait Bozik

Institutions are defined as social structures established by human beings with the intention of fulfilling specific objectives. These entities manifest in diverse forms, including companies, schools, hospitals, government agencies, religious institutions, and non-governmental organizations. The question arises as to whether these entities possess a morality that is distinct from that of the individuals who create and manage them. Alternatively, could the concept of corporate morality be considered as the aggregate of the moral actions of the individuals within the institution? Institutional morality is defined as the values, norms, and standards of behavior that an institution adopts while conducting its activities. The historical evolution of organizational morality has coincided with the emergence of modern organizations. The advent of large corporations, government agencies, and increasingly complex organizations, particularly in the aftermath of the Industrial Revolution, gave rise to novel moral challenges. The 1950s witnessed the genesis of corporate ethics discourse, anchored by the notion of corporate social responsibility, while codes of ethics and corporate values assumed prominence in the 1970s. The 1980s and 1990s witnessed an escalation in demands for corporate ethics and transparency, precipitated by major corporate scandals such as the Exxon Valdez, Enron, and WorldCom. The early 2000s marked a shift towards more intricate corporate ethical frameworks, driven by the forces of globalization and technological advancement. As Argandoña (1995) elucidates in The Ethical Dimension of Financial Institutions and Markets, "economic systems are built on the ideas and values of a given society and a set of institutions and social norms." In this context, institutions are not merely technical or economic structures; they are also moral entities that reflect value systems and shape social norms.

Institutions and Morality

The debate surrounding the moral standing of institutions is intricately tied to the philosophical discourse on the very concept of institution. The first of these is Methodological Individualism. According to this approach, institutions are merely the aggregate of individuals, and what is termed "corporate morality" is, in fact, the collective outcome of the moral conduct of individuals within the institution. Friedman's (1970) assertion that "the social responsibility of business is only to increase its profits" exemplifies this approach. This perspective posits that institutions lack moral agency, thereby assigning moral responsibility exclusively to individuals. Another approach is the collectivist approach. This approach asserts that institutions possess distinct characteristics, identities, and values that extend beyond the individual. According to this perspective, theorists such as Peter French contend that organizations can be regarded as "moral persons" due to their decision-making processes, long-term objectives, and organizational cultures. According to this perspective, institutions possess the capacity to assume moral responsibility and be subject to ethical assessments. A third approach, the Social Constructionist approach, argues that institutions and their moral dimensions are socially constructed. The morality of institutions is shaped by societal expectations, cultural values, and historical contexts. Consequently, the concept of corporate morality transcends the realms of individual or collective phenomena, emerging as a structured entity shaped by the dynamic interactions and systems of meaning within society.

Dimensions and Importance of Corporate Ethics

A comprehensive understanding of institutional ethics necessitates an examination of its multifaceted dimensions. In Truth and Deceit in Institutions, Woodhead (2021) draws attention to the formal and informal dimensions of corporate ethics. The formal dimension encompasses formal mechanisms such as written codes of ethics, policies, and compliance systems. The informal dimension, in contrast, encompasses unwritten elements such as corporate culture, values, norms, and traditions that exert a significant influence on behavior. As Warne (2021) emphasizes, the interplay between "formal institutions" (e.g., banks, churches, universities) and "informal institutions" (traditions, practices, customs) is a pivotal factor in comprehending corporate ethics. Formal institutions, as Warne (2024) notes, are sustained by informal traditions, deriving their legitimacy from these very traditions. Erdoğmuş (2018) offers a nuanced perspective on organizational ethics, distinguishing between structural and behavioral dimensions. The structural dimension encompasses the organizational structure, business processes, and systems of the organization in accordance with moral values. The behavioral dimension, in turn, encompasses the moral behaviors, decisions, and practices of employees and managers. Corporate ethics encompasses the principles and values that govern the internal functioning of the organization (e.g., relations between employees, decision-making processes, etc.) and its external relations (e.g., relations with customers, suppliers, society and the environment). The alignment between these internal and external dimensions is a critical factor in ensuring the reliability of corporate ethics. The dimensions of corporate ethics also reveal its components. It is evident that every organization possesses a unique system of values, whether explicit or implicit. These values influence the organization's decision-making processes, priorities, and behaviors. Basic moral values such as honesty, transparency, fairness, responsibility, and respect are part of the value system of many organizations. Corporate culture is defined as the shared understandings, beliefs, and patterns of behavior that define the "way things are done here." According to Schein, the operation of organizational culture occurs at three levels: visible artifacts, values, and basic assumptions. Schein further asserts that corporate culture exerts a more substantial influence on corporate behavior than formal rules. Decision-making processes, authority structures, incentive systems, performance evaluation criteria, and control mechanisms represent critical structural elements that influence corporate morality. These systems have the capacity to either support or undermine moral values. The role of organizational leadership in shaping and sustaining ethical practices within the corporate landscape is a critical factor. The behaviors, decisions, and communications of leaders collectively determine the moral climate of the organization. The principle of "tone at the top" underscores the pivotal role of leadership in shaping corporate ethics. Effective communication with both internal and external stakeholders is instrumental in conveying and reinforcing moral values (Warne, 2024). Transparency, accountability, and honest communication are foundational elements of corporate ethics. As Woodhead (2021) asserts, the ability of organizations to confront and articulate challenging realities is a crucial indicator of corporate ethics.

The significance of Corporate EthicsInstitutions are only able to function with the consent and backing of society. Moral behavior is a critical factor in ensuring the social legitimacy and credibility of institutions. The absence of trust, therefore, can be considered a critical factor in the long-term viability of any institution. As Judt (2009) astutely observes, "all collective endeavors require trust." Institutional structures grounded in moral values prioritize long-term sustainability over short-term gains. Research findings indicate that organizations with strong moral values tend to demonstrate greater long-term success. Conversely, unethical conduct engenders substantial legal, financial, and reputational hazards for organizations. A robust corporate ethos is instrumental in mitigating these risks. Organizational environments founded on ethical values empower employees to actualize their potential, engage in meaningful work, and evolve both personally and professionally. This phenomenon has been shown to result in heightened motivation, commitment, and performance among employees. This prompts the following research question: Can organizations possess moral agency? This inquiry can be addressed through various responses. A compelling argument can be made for institutions possessing moral agency. The institutional identity, decision-making systems, historical continuity, and collective action of these institutions provide the foundation for this argument. Institutions possess distinct identities, missions, and values. Institutions possess distinct decision-making processes that are autonomous from individual choices. Furthermore, institutions possess a longevity that exceeds that of individuals, thereby enabling them to perpetuate values and traditions across successive generations. The actions of institutions often exhibit distinctive qualities that differ from those of individuals, resulting in collective consequences. The aforementioned factors provide a foundation for the promotion of moral agency. Nevertheless, it must be acknowledged that there exist counterarguments to this position. These counterarguments assert a lack of self-consciousness, will, moral sense, and diffusion of responsibility. Institutions, like individuals, do not possess self-consciousness or moral awareness. They lack autonomous will, with all decisions being made by individuals. Institutions are devoid of the capacity to experience moral emotions such as conscience, empathy, and guilt. Consequently, institutional responsibility is often characterized by ambiguity and diffusion. These phenomena provide a foundation for the diminution of moral agency. A compelling approach to understanding this dynamic is to acknowledge that institutions are not entirely devoid of moral agency, yet they also do not act as wholly moral agents. Instead, institutions can be regarded as moral systems. These systems encompass structures, processes, norms, and values that influence, enable, or impede the moral behavior of individuals. Institutional morality should be understood as a concept that is open to development beyond the scope of individual agency. It is imperative that corporate values be explicitly defined, communicated, and internalized throughout the organization. Values should not merely be statements on the wall, but living principles that shape daily decisions and behaviors. The implementation of codes of ethics, policies, procedures, and control mechanisms is imperative to ensure adherence to these moral standards. However, these mechanisms, while essential, must be reinforced by a values-driven approach. Corporate leaders must embody moral values and serve as role models through their actions. The moral dimension of leadership is as significant as its technical or strategic dimensions. Organizational ethics can be cultivated through various means, including moral training, case discussions, and dialogues on moral dilemmas. As Boniolo (2006) proposes, a "culture of debate and deliberation" can serve as the foundation for organizational ethics.

The response to the query regarding the capacity of institutions to possess morality is contingent upon the conceptualization of institutions and the conception of morality. If institutions are regarded exclusively as the aggregate of individuals, institutional morality will be reduced to the sum of individual morality. However, if we conceptualize institutions as social systems, collective identities, or historical entities, it becomes imperative to acknowledge that institutional morality possesses its own distinct reality. The most plausible perspective is that institutions possess distinct moral systems, while concurrently acknowledging that these systems are ultimately shaped, sustained, and adapted by human agency. Institutional morality, therefore, cannot be considered entirely independent of individual morality, yet it is not entirely reducible to it. The morality of institutions can be conceptualized as the aggregate expression of people's moral agency, a phenomenon shaped by institutional structures, systems, cultures, and history, yet ultimately derived from human values and choices. To assert that institutions are devoid of morality is to disregard the profound impact of institutions on human experience and society. Conversely, the notion of institutions as autonomous moral entities may overlook the significance of human agency. The concept of institutional morality, therefore, is best understood as a nexus between these two extremes, emerging and evolving through the intricate interplay of institutional structures, systems, cultures, and historical contexts. A serious consideration of institutional ethics entails acknowledging the transformative influence of institutions on individuals and the world, and the necessity of ensuring that this influence is exercised in accordance with ethical principles. In order to address the intricate societal challenges of the present age, it is imperative to enhance the moral responsibility of both individuals and institutions.

References

Argandoña, A. (1995). The Ethical Dimension of Financial Institutions and Markets. Heidelberg: Springer Berlin.

Boniolo, G., & De Anna, G. (2006). Evolutionary Ethics and Contemporary Biology. Cambridge: Cambridge University Press.

Erdoğmuş, N. (2018). Örgütsel Ahlak: Örgütlerde İş Ahlakı Uygulamaları. In N. Erdoğmuş, Ö. Torlak, & K. B. Tiryaki (Eds.), Temelleri ve uygulamalarıyla iş ahlakı (pp. 140 - 162). İstanbul: İGİAD Yayınları.

Friedman, M. (1970, 13 Eylül 1970). A Friedman Doctrine: The Social Responsibility of Business is to Increase Its Profits. The New York Times Magazine. Retrieved from https://www.nytimes.com/1970/09/13/archives/a-friedman-doctrine-the-social-responsibility-of-business-is-to.html

Judt, T. (2009). Savaş Sonrası: 1945 Sonrası Avrupa Tarihi. İstanbul: Yapı Kredi Yayınları.

Warne, N. A. (2021). Institutional justice and the virtue of gratitude. Anglican Theological Review, 103(3), 286-297. doi:https://doi.org/10.1177/00033286211023902

Warne, N. A. (2024). Humanism and History as Ethics of Institutions: A Reflection on Linda Woodhead, Truth, and Institutions. Religions, 15(1), 73. doi:https://doi.org/10.3390/rel15010073

Woodhead, L. (2021). Truth and Deceit in Institutions. Studies in Christian Ethics, 35(1), 87-103. doi:https://doi.org/10.1177/09539468211051162